Wednesday, January 2, 2013

Dividend investing is a long term process, where capital is invested upfront today, with the intention to receive dividends for many years to come. Dividends have historically represented approximately 40% of average annual total returns, which is why they are an important part of the investing decision. The thing about dividend checks is that unlike capital gains, they are always positive. As long as the company you purchased is sound financially, it should be able to distribute cash in your brokerage account like clockwork every single quarter. As a result, it is no surprise that dividend stocks are getting a lot of attention from current and future retirees.

The most important decision for someone who wants to retire with dividend stocks is to actually get started. This means saving money consistently, and then investing it in the dividend stocks of their choice. In this article, I am going to outline a few dividend stocks, which make very good candidates for a beginning income portfolio. In other words, if I were starting a portfolio tomorrow, I would include the following stocks.

Consumer Staples

Clorox Company (CLX), The-Global Auto-Care Business is a United States-based Company, which manufacturers and markets consumer and institutional products. The company has raised distributions for 35 years in a row. The stock trades at 17.60 times earnings and yields 3.50%. Check my analysis of the stock for more information.

The Procter & Gamble Company (PG) is focused on providing consumer packaged goods, which are sold in more than 180 countries primarily through mass merchandisers, grocery stores, membership club stores, drug stores and high-frequency stores. The company has raised distributions for 56 years in a row. The stock trades at 18.70 times earnings and yields 3.30%. Check my analysis of the stock for more information.

Colgate-Palmolive Company (CL) is a consumer products company, which operates in over 200 countries and territories worldwide. The Company operates in two product segments: Oral, Personal and Home Care; and Pet Nutrition. The company has raised distributions for 49 years in a row. The stock trades at 20.40 times earnings and yields 2.40%. Check my analysis of the stock for more information.

Kimberly-Clark Corporation (KMB), is engaged in the manufacturing and marketing of a range of products made from natural or synthetic fibers using advanced technologies in fibers, nonwovens and absorbency. The company has raised distributions for 40 years in a row. The stock trades at 17.50 times earnings and yields 3.50%. Check my analysis of the stock for more information.

The Coca-Cola Company (KO) is a beverage company, which owns or licenses and markets more than 500 nonalcoholic beverage brands, primarily sparkling beverages but also a variety of still beverages, such as waters, enhanced waters, juices and juice drinks, ready-to-drink teas and coffees, and energy and sports drinks. The company has raised distributions for 50 years in a row. The stock trades at 18.80 times earnings and yields 2.80%. Check my analysis of the stock for more information.

PepsiCo, Inc. (PEP) is a global food and beverage company. The company has raised distributions for 40 years in a row. The stock trades at 18.10 times earnings and yields 3.10%. Check my analysis of the stock for more information.

Walgreen Co. (WAG), operates a drugstore chain in the United States which provides its customers with access to consumer goods and services, pharmacy, and health and wellness services in communities across America. The company has raised distributions for 37 years in a row. The stock trades at 16.50 times earnings and yields 3%. Check my analysis of the stock for more information.

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats around globally. The company has raised distributions for 38 years in a row. The stock trades at 13.90 times earnings and yields 2.30%. Check my analysis of the stock for more information.

Philip Morris International Inc. (PM), through its subsidiaries, manufactures and sells cigarettes and other tobacco products. The company has raised distributions for five years in a row. The stock trades at 16.50 times earnings and yields 4.10%. Check my analysis of the stock for more information.

Consumer Discretionary

McDonald’s Corporation (MCD) franchises and operates McDonald’s restaurants in 119 countries globally. The company has raised distributions for 36 years in a row. The stock trades at 16.50 times earnings and yields 3.50%. Check my analysis of the stock for more information.

Health Care

Johnson & Johnson (JNJ) is engaged in the research and development, manufacture and sale of a range of products in the healthcare field. The company has raised distributions for 50 years in a row. The stock trades at 14.20 times earnings and yields 3.50%. Check my analysis of the stock for more information.

Becton, Dickinson and Company (BDX) is a global medical technology company engaged in the development, manufacture and sale of medical devices, instrument systems and reagents used by healthcare institutions, life science researchers, clinical laboratories, the pharmaceutical industry and the general public. The company has raised distributions for 41 years in a row. The stock trades at 13.80 times earnings and yields 2.50%. Check my analysis of the stock for more information.

Medtronic (MDT) develops and manufactures a range of products and therapies providing a continuum of care to diagnose, prevent and monitor chronic conditions. The company has raised distributions for 35 years in a row. The stock trades at 12.40 times earnings and yields 2.50%. Check my analysis of the stock for more information.

Financials

Aflac Incorporated (AFL) is engaged in providing supplemental health and life insurance, through its subsidiary, American Family Life Assurance Company of Columbus, which operates in the United States and as a branch in Japan. The company has raised distributions for 30 years in a row. The stock trades at 8.60 times earnings and yields 2.60%. Check my analysis of the stock for more information.

Materials

Air Products and Chemicals, Inc. (APD) has a portfolio of products, services, and solutions that include atmospheric gases, process and specialty gases, performance materials, equipment, and services. The company has raised distributions for 30 years in a row. The stock trades at 15.20 times earnings and yields 3%. Check my analysis of the stock for more information.

Industrials

Emerson Electric Co. (EMR) is engaged in designing and supplying products and technology, and delivering engineering services and solutions in a range of industrial, commercial and consumer markets globally. The company has raised distributions for 56 years in a row. The stock trades at 19.50 times earnings and yields 3.10%. Check my analysis of the stock for more information.

United Technologies Corporation (UTX) provides high technology products and services to the building systems and aerospace industries worldwide. The company has raised distributions for 19 years in a row. The stock trades at 16.60 times earnings and yields 2.60%. Check my analysis of the stock for more information.

Energy

Chevron Corporation (CVX), through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. The company has raised distributions for 25 years in a row. The stock trades at 8.70 times earnings and yields 3.30%. Check my analysis of the stock for more information.

Kinder Morgan Energy Partners, L.P. (KMP) operates as a pipeline transportation and energy storage company in North America. The partnership has raised distributions for 16 years in a row. The units currently yield 6.50%. Check my analysis of this MLP for more information.

Enterprise Products Partners L.P. (EPD) provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals in the United States and internationally. The partnership has raised distributions for 15 years in a row. The units currently yield 5.30%. Check my analysis of this MLP for more information.

It is important when you build you income portfolio is to aim at being diversified. Holding at least 30 individual stocks is essential to ensure that income is relatively diversified. While the list above includes 20 stocks, with heavy representation from Consumer Staples stocks. I have found that over time new companies could become attractively priced, and thus be added by the enterprising dividend investor. It is important to be diversified, but do not diversify at all costs. For example technology companies are in an industry characterized with rapid technological advancement and obsolescence of existing products. As a result, tech companies might have to invest large amounts each year simply to stay competitive. This leaves little money for establishment of a consistent streak of dividend increases.

In addition, it is also important to build your portfolio slowly, by dollar cost averaging your way into positions. It is also important to focus on entry price as well, since overpaying even for quality stocks can lead to subpar returns. Investors should also remain flexible in their investment approach. They need to focus on the big picture, and not get lost in the details. Of course. dividend investing is a buy and monitor, not a buy and forget type of investment strategy. Investors should monitor each investment regularly, and decide whether it makes sense to buy more, simply hold on or sell right away.

Once invested, I would look for opportunities to add into shares of other companies’. By accumulating dividends in cash, and then selectively initiating shares of quality dividend stocks over time, the investor would be able to diversify their portfolio even further, while also compounding their capital as well.

To summarize, the companies above represent great buys at current valuations for a portfolio in 2013 and beyond. By monitoring your portfolio holdings, adding funds, and reinvesting dividends, your passive income stream will eventually lead to your dividend crossover point.

I'm a little nervous on J&J for continuing, strong dividend growth. I posted yesterday that I think its driving much of its recent dividend growth from payout ratio increases, Something to watch closely.

Now that the split is over, can you give your perspective on owning ABT and ABBV (the two new companies)? From dividend growth investing perspective, should one sell ABBV and just keep ABT, or keep both?

I would like to take $350K of money sitting in a money market fund and invest in dividend paying companies. Is this list of 20 companies a good start. I would invest and hold with reinvestment of dividends where prudent. Should I hold a portion in cash in case of a market turndown? Thank you, Bob

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